Fees aren't everything when it comes to exchange traded funds. Yes, it's possible for investors find excellent, long-term
returns with ETFs that feature above-average fees. Likewise, not all low-fee ETFs merit investors' attention.
Still, lower fees remain one of the biggest reasons why scores of advisors and investors are dropping high-priced,
underperforming actively managed mutual funds. However, some ETFs are pricey and that's not always a good thing. The First Trust
Value Line Dividend Index Fund (NYSE: FVD) is an example of
that theme.
FVD was one of 30 ETFs to hit an all-time high last Friday and one of a dozen dividend ETFs to accomplish that feat. FVD is also
the most expensive of those dividend ETFs by a wide margin. The First Trust offering charges 0.7 percent per year, or $70 for every
$10,000 invested.
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Sure, dividend ETFs usually carry higher expense ratios than ETFs tracking standard broad market indexes such as the S&P 500
or the Russell 1000, but 0.7 percent a year is pricey even by the standards of dividend ETFs. Actually, FVD's annual fee is rich by
the standards of all ETFs. Research for this piece turned up several different numbers for the average annual fee for ETFs, but all
the figures discovered were
less than 0.45 percent.
So even when calling the average annual expense ratio on U.S. ETF 0.45 percent, FVD is more than 50 percent more expensive.
FVD allocates 24.1 percent of its weight to utilities stocks, helping explain why the ETF is up 11.5 percent, but investors
looking for a dividend ETF with big utilities can save some money with the iShares Select Dividend ETF (NYSE: DVY). DVY devotes 31.3 percent of its weight to utilities stocks, one of
the largest such allocations among all U.S. dividend ETFs. Over the past five years, DVY and FVD have each returned about 87
percent, but DVY charges just 0.39 percent per year.
Interestingly, there are some comparisons that show FVD justifies its higher fee. For example, the First Trust ETF has topped
the Vanguard High Dividend Yield ETF (NYSE: VYM) by
nearly 900 basis points over the past three years. One reason VYM is popular is its 0.09 percent expense ratio that makes it less
expensive than 92 percent of rival
funds.
VYM has $13.4 billion in assets under management compared to $1.88 billion for FVD.
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